With fresh figures showing a return to economic growth over last year, George Osborne has a spring in his step. Growth is back, jobs are being created; his plan is vindicated in time for today's budget. There’s work still to do, but he’s building a “resilient economy”.

And yet somehow most of us aren’t sharing the joy. A Sunday Mirror poll shows just one in eleven think things have got better for them over the last year. 44% think they’re finding it harder and harder to pay bills. And over half think job prospects for young people have worsened.

It’s George Osborne v the British public. They can’t both be right. So what’s really going on? New NEF research, out today, looks beyond the headlines to settle the question.

Not a recovery but a relapse

The economy is certainly growing, with official GDP figures showing the fastest rate of growth since 2007. But this doesn’t mean most of us are getting better off. As the graph below shows, average real earnings – earnings after taking account of rising prices – have fallen and fallen again since 2010. This long, drawn out decline in most people’s living standards is unprecedented in recent history. You have to go back to the 1870s to find a similar period of decay.

But something odd is happening. Even as most of us steadily getting poorer, consumer spending has been rising – which is what has been driving economic growth. We seem, collectively, to be buying more stuff with less money.

This is only possible for two reasons. First - we aren't collectively consuming. Earnings are becoming more unevenly distributed. Of those new private-sector jobs Osborne likes to boast about, four out of five are in parts of the economy that pay generally low wages – like retail and catering. And an astonishing 80% of jobs created since 2010 are in London. Rising consumption by a few richer people could sustain this.

Second, borrowing is being used to make good the difference. In most recent figures from the Bank of England, there has been a sustained increase in borrowing by households over the last year. I’ve overlaid this graph with a line showing retail spending, just to stress the point.

This looks very much like the early stages not of a genuine recovery, but a relapse into dangerous habits from the early 2000s. Real earnings are shrinking, but economic growth is being sustained by an increase in borrowing.

There’s nothing resilient about this. It’s a repeat of exactly the conditions that led to the crash. No wonder the polls are reporting such public cynicism. And no wonder so few people think their own situation is getting any better.

A break with the past

Today's budget will likely all be about the details - changes to personal tax allowances, tweaks to the VAT system. But for this to become a genuine recovery, we need to think bigger - we need a break with the past.

Stronger protections for those at work, like a mandatory living wage and more assertive trade unions would help shift the balance of economic power in favour of labour. That would provide real increases in living standards, not the mirage of debt-fuelled consumption. And to make sure work is created, we need investment to take place. UK companies, large ones especially, are sitting on cash deposits of some £750bn, but their investment spending has fallen and fallen as a share of GDP. Cutting corporation tax is clearly not persuading them to spend, so a more assertive approach is needed: threatening to tax their deposits, for instance, or taking a greater share of their profits.

George Osborne himself has acknowledged that his recovery is ‘unbalanced’ and ‘not secure’. But looking beyond the single measure of GDP we can see this is an understatement. Our report reveals serious underlying problems in the British economy that must be addressed.